Ex-Im Bank Is a Tiny But Tempting Target

Megan McArdle is a Bloomberg View columnist. She wrote for the Daily Beast, Newsweek, the Atlantic and the Economist and founded the blog Asymmetrical Information. She is the author of "“The Up Side of Down: Why Failing Well Is the Key to Success.”Read More.

In Washington, the high-stakes battles of yesteryear have given way to a grim stalemate, in which Obama doesn't try to do much of anything, and Republicans half-heartedly try to stop him from doing not very much, and everyone tells reporters how important it all is.

In this extended siege, the strangest skirmish has been over the Export-Import Bank. It's a tiny government arm -- more of a pinky finger, really -- that provides subsidized loans to companies selling abroad. Its importance can be measured by the fact that you may well never have heard of it, or at best, learned of it for the first time when you heard that it was under attack by conservatives. And yet, it arouses great passion in columnists on both sides.

Joe Nocera has fired the latest salvo over the wall. Railing against the "conservative ideologues" who have thus far kept it from being reauthorized, he writes: "With the Ex-Im Bank, the extreme right has drawn a line in the sand. Given the very real benefits it provides exporters, the time has come for the rest of us to do the same."

I should probably note at this juncture that I count several of the Ex-Im Bank's most formidable enemies as good friends; one of them was a reader at my wedding. I have been personally chided by same for pointing out that on the cosmic scale of things, the Ex-Im Bank simply doesn't matter. Its impact on the U.S. economy, for good or ill, is trivial. And yet, columns like Mr. Nocera's force me to add a codicil: "Nonetheless, count me with the ideologues."

The Ex-Im Bank is fundamentally indefensible. Mostly what it does is subsidize production for very large firms that are quite capable of getting finance in the traditional way, by going to people with money and asking for it.

So every time the Ex-Im Bank gets involved in a deal, there are only two possibilities: The government is needlessly subsidizing something that would have happened anyway, giving away cheap money to a huge corporation. Or else it's subsidizing a deal that wouldn't have happened anyway, in which case we are defending the use of taxpayer dollars to sell cheap manufactured goods to foreigners. It's not even as if we're picking out especially needy foreigners, who may require a charitable contribution from the prosperous citizens of the United States; the subsidy is distributed on the basis of who is willing to, say, buy cut-rate U.S. airframes. And guess who benefits? U.S. corporations that export a lot.

This is not a good use of taxpayer dollars, and conservative ideologues, bless their hearts, are quite right to want to get rid of it. Their passion is a little out of proportion to the harm that this agency does, but even a small step in the right direction is better than none. The bank's opponents concede that. For them, the appeal of taking on Ex-Im is that they might be able to take it down.

Against this impeccable economic and political logic, the bank's supporters marshal a few arguments. First, they often claim (as Nocera implies) that the Ex-Im Bank generates a lot of money for the Treasury. Which is sort of true ... except. First of all, it doesn't account for the opportunity costs of the distortion; resources are diverted into production of certain goods, and away from others. And second of all, government accounting for loans is rather weird. According to the Congressional Budget Office, if we used a fair value accounting method, which would account for the risk of changing market conditions, the Ex-Im Bank's six largest programs would be generating a deficit, not a surplus.

We are also told that Ex-Im is a vital matter of national security. I'm going out on a limb here, but I'm pretty sure that if the U.S. government needs to find some money to give foreigners as a vital matter of national security, they will manage to find it even if the Ex-Im Bank is shuttered and its silent halls hold only the lingering ghosts of departed exporters.

Supporters of Ex-Im will also say that the economic logic against it applies only in a vacuum. In reality, other countries are offering these kinds of sweet deals, so the U.S. feels pressure to do so too. Economists at the University of Tampa decided to ask themselves whether this sort of "leveling the playing field" actually helps the U.S. Their conclusion: This retaliation makes the country worse off, not better, in a world where everyone else is offering subsidies.

Now, of course, that doesn't mean that everyone in the country is better off if we stick with our free-trading ways. Exporters and their employees would be worse off (which is why defenses of the Ex-Im Bank like to point to the jobs the bank creates). But the subsidy approach we're using now is hurting the country as a whole. Subsidizing a few big manufacturers at the expense of other taxpayers is not, I submit, the proper aim of U.S. economic policy.

And even if it doesn't matter on a macroeconomic scale, it does matter on a micro scale. One of the worst features of U.S. government is the grave difficulty of killing off any program, no matter how stupid, because it has a built-in constituency that will rise swiftly and fiercely to its defense, while the broad mass of taxpayers and consumers is very hard to mobilize against something so small.

At the end of his great book on the phenomenon, "Demosclerosis," Jonathan Rauch argues that the only way to prune back this crony capitalist tangle is to make relentless war on each daft distortion, not expecting to win with one big battle any more than we expect to "win" the war on crime. Ex-Im is a good example of the sort of program we should kill when we have a clear shot, if for no other reason than pour encourager les autres.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Megan McArdle is a Bloomberg View columnist. She wrote for the Daily Beast, Newsweek, the Atlantic and the Economist and founded the blog Asymmetrical Information. She is the author of "“The Up Side of Down: Why Failing Well Is the Key to Success.”Read more